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Amazon's tax avoidance can only be solved at EU level

The revelation in The Guardian last week that Amazon pays no UK corporation tax has prompted much anguish. How can a company that is the UK's largest online retailer with annual sales in the UK of £3.3bn get away with this? Tim Waterstone, founder of the high street book store chain, weighed in with a column in the same paper bemoaning Amazon's "contemptuous, arrogant and subversive" approach.

Despite all the attention on Amazon's behaviour, few solutions to the Amazon problem have been proposed. It's not as if the multinational is going to easily be shamed into paying more tax, and as Waterstone admits, Amazon is acting within the letter of the law.

The solution is instead to look at how tax systems work within the European Union and – shock horror – solve these issues at EU level.

There is a general consensus in the United Kingdom that being part of the EU's single market is a good thing. It allows a UK bookseller to ship its products to Luxembourg, and a Luxembourg bookseller to ship to the UK. There are no cumbersome tariffs or customs procedures involved in doing this. As consumers we win. Yet as taxpayers we increasingly lose.

The first problem is with Value Added Tax (VAT). Paper books have zero-rate VAT in the UK, while e-books are defined as electronic products and are subject to VAT at 20 per cent. Luxembourg, following the lead of France, has reduced VAT on e-books to three per cent. So Kindle e-books sold by the Luxembourg-headquartered Amazon EU Sarl, have a 17 per cent price advantage over the same publication sold by a UK-based e-book seller, even when bought by a customer residing in the UK.

In 2015 the EU VAT rules are due to change, meaning the country of residence of the purchaser will determine the VAT rate, but in the fast-paced technology sector the next three years are going to be crucial - how many UK-based booksellers are going to even be left by 2015?

The second problem is with corporation tax, both the rate of corporation tax and how you define the profits on which it is levied. Ireland's low 12.5 per cent corporation tax rate is one of the reasons both Google and Apple have their EU headquarters there. However Luxembourg is not an especially low corporation tax regime – its headline rate of 28.59 per cent is higher than the UK's rates. The attraction of Luxembourg for Amazon is instead that the costs that can be offset against income are defined differently. This allows for Amazon to have a lower taxable income if based in Luxembourg rather than in the UK.

The European Commission has realised that this is a problem for more than a decade, having repeatedly attempted to work towards a common consolidated corporate tax base (CCCTB), yet so far to no avail. The idea is that the definition of profits eligible to be taxed in all EU countries would be the same, yet the actual corporation tax rate would continue to vary.

Tax matters at EU level require the unanimous agreement of all EU member states and the UK and Ireland, among others, have refused to be drawn on the corporation tax issue - neither the tax base nor corporation tax rates. British chancellors (both Labour and Conservative) have repeatedly stuck to the line that taxation is a matter of national sovereignty and that further EU-wide rules on corporation tax are unwelcome. Yet as as the Amazon case shows, sticking to a resolutely national position on taxation becomes less and less tenable in a globalised market where electronic as well as physical goods are increasingly traded across borders.

Perhaps if you are George Osborne and you believe in a destructive race-to-the-bottom on tax rates all of this might be desirable, but it is high time that Labour revisited this issue in opposition. The only alternative to tax competition is tax harmonisation. An EU-wide agreement on the definition of an e-book for VAT purposes, and a commitment to a common consolidated corporate tax base are the very least Ed Balls should be demanding.

The Brexit Beartraps, #2: Could dropping out of the open skies agreement cancel your holiday?

So what is it this time, eh? Brexit is going to wipe out every banana planet on the entire planet? Brexit will get the Last Night of the Proms cancelled? Brexit will bring about World War Three?

To be honest, I think we’re pretty well covered already on that last score, but no, this week it’s nothing so terrifying. It’s just that Brexit might get your holiday cancelled.

What are you blithering about now?

Well, only if you want to holiday in Europe, I suppose. If you’re going to Blackpool you’ll be fine. Or Pakistan, according to some people...

You’re making this up.

I’m honestly not, though we can’t entirely rule out the possibility somebody is. Last month Michael O’Leary, the Ryanair boss who attracts headlines the way certain other things attract flies, warned that, “There is a real prospect... that there are going to be no flights between the UK and Europe for a period of weeks, months beyond March 2019... We will be cancelling people’s holidays for summer of 2019.”

He’s just trying to block Brexit, the bloody saboteur.

Well, yes, he’s been quite explicit about that, and says we should just ignore the referendum result. Honestly, he’s so Remainiac he makes me look like Dan Hannan.

But he’s not wrong that there are issues: please fasten your seatbelt, and brace yourself for some turbulence.

Not so long ago, aviation was a very national sort of a business: many of the big airports were owned by nation states, and the airline industry was dominated by the state-backed national flag carriers (British Airways, Air France and so on). Since governments set airline regulations too, that meant those airlines were given all sorts of competitive advantages in their own country, and pretty much everyone faced barriers to entry in others.

The EU changed all that. Since 1994, the European Single Aviation Market (ESAM) has allowed free movement of people and cargo; established common rules over safety, security, the environment and so on; and ensured fair competition between European airlines. It also means that an AOC – an Air Operator Certificate, the bit of paper an airline needs to fly – from any European country would be enough to operate in all of them.

Do we really need all these acronyms?

No, alas, we need more of them. There’s also ECAA, the European Common Aviation Area – that’s the area ESAM covers; basically, ESAM is the aviation bit of the single market, and ECAA the aviation bit of the European Economic Area, or EEA. Then there’s ESAA, the European Aviation Safety Agency, which regulates, well, you can probably guess what it regulates to be honest.

All this may sound a bit dry-

It is.

-it is a bit dry, yes. But it’s also the thing that made it much easier to travel around Europe. It made the European aviation industry much more competitive, which is where the whole cheap flights thing came from.

In a speech last December, Andrew Haines, the boss of Britain’s Civil Aviation Authority said that, since 2000, the number of destinations served from UK airports has doubled; since 1993, fares have dropped by a third. Which is brilliant.

Brexit, though, means we’re probably going to have to pull out of these arrangements.

Stop talking Britain down.

Don’t tell me, tell Brexit secretary David Davis. To monitor and enforce all these international agreements, you need an international court system. That’s the European Court of Justice, which ministers have repeatedly made clear that we’re leaving.

So: last March, when Davis was asked by a select committee whether the open skies system would persist, he replied: “One would presume that would not apply to us” – although he promised he’d fight for a successor, which is very reassuring.

We can always holiday elsewhere.

Perhaps you can – O’Leary also claimed (I’m still not making this up) that a senior Brexit minister had told him that lost European airline traffic could be made up for through a bilateral agreement with Pakistan. Which seems a bit optimistic to me, but what do I know.

Intercontinental flights are still likely to be more difficult, though. Since 2007, flights between Europe and the US have operated under a separate open skies agreement, and leaving the EU means we’re we’re about to fall out of that, too.

Surely we’ll just revert to whatever rules there were before.

Apparently not. Airlines for America – a trade body for... well, you can probably guess that, too – has pointed out that, if we do, there are no historic rules to fall back on: there’s no aviation equivalent of the WTO.

The claim that flights are going to just stop is definitely a worst case scenario: in practice, we can probably negotiate a bunch of new agreements. But we’re already negotiating a lot of other things, and we’re on a deadline, so we’re tight for time.

In fact, we’re really tight for time. Airlines for America has also argued that – because so many tickets are sold a year or more in advance – airlines really need a new deal in place by March 2018, if they’re to have faith they can keep flying. So it’s asking for aviation to be prioritised in negotiations.

The only problem is, we can’t negotiate anything else until the EU decides we’ve made enough progress on the divorce bill and the rights of EU nationals. And the clock’s ticking.

This is just remoaning. Brexit will set us free.

A little bit, maybe. CAA’s Haines has also said he believes “talk of significant retrenchment is very much over-stated, and Brexit offers potential opportunities in other areas”. Falling out of Europe means falling out of European ownership rules, so itcould bring foreign capital into the UK aviation industry (assuming anyone still wants to invest, of course). It would also mean more flexibility on “slot rules”, by which airports have to hand out landing times, and which are I gather a source of some contention at the moment.

But Haines also pointed out that the UK has been one of the most influential contributors to European aviation regulations: leaving the European system will mean we lose that influence. And let’s not forget that it was European law that gave passengers the right to redress when things go wrong: if you’ve ever had a refund after long delays, you’ve got the EU to thank.

So: the planes may not stop flying. But the UK will have less influence over the future of aviation; passengers might have fewer consumer rights; and while it’s not clear that Brexit will mean vastly fewer flights, it’s hard to see how it will mean more, so between that and the slide in sterling, prices are likely to rise, too.

It’s not that Brexit is inevitably going to mean disaster. It’s just that it’ll take a lot of effort for very little obvious reward. Which is becoming something of a theme.

Still, we’ll be free of those bureaucrats at the ECJ, won’t be?

This’ll be a great comfort when we’re all holidaying in Grimsby.

Jonn Elledge edits the New Statesman's sister site CityMetric, and writes for the NS about subjects including politics, history and Brexit. You can find him on Twitter or Facebook.